“…in 2005 we promised tax cuts which ranged from about $10 to $92 a week, roughly $45 a week for someone on $50,000 a year. I described it as a credible programme of personal tax cuts and I’m committed to a credible programme of personal tax cuts. I believe that an ongoing programme of personal tax cuts that delivers the sort of magnitude that we’ve had in the past is potentially possible.” – John Key, Leader of the Opposition, 20 May 2008

“Our tax policy is therefore one of responsible reform… We have ensured that our package is appropriate for the current economic and fiscal conditions… This makes it absolutely clear that to fund National’s tax package there is no requirement for additional borrowing and there is no requirement to cut public services… National’s rebalancing of the tax system is self-funding and requires no cuts to public services or additional borrowing.” – John Key, Leader of the Opposition, 20 October 2008

.

“Taxpayers do not want further tax cuts if they mean more government borrowing, a new survey shows. The survey comes as social welfare campaigners say tax cuts failed to help those most in need. The New Zealand Business Council for Sustainable Development survey found that while most people wanted tax cuts planned for 2010 and 2011, they did not want them if it meant further borrowing… The survey found most people would spend the tax cuts on living expenses, while others looked to credit-card debt and mortgage payments. “ – New Zealand Business Council for Sustainable Development, 11 April 2009

.

In 2008, National campaigned on promises of tax cuts knowing full well this country could not afford them. By November 2008, as New Zealand went to the polls, the international global banking crisis was in full swing, and recession was beginning to hit nearly every single nation on Earth (Australia and China were the lucky exceptions).

Against this backdrop, National proceeded with it’s election promises of tax cuts. As unfolding events would show, they were irresponsible promises – and carrying them out in April 2009 and October 2010 was even more reckless,

“John Key has defended his party’s planned program of tax cuts, after Treasury numbers released today showed the economic outlook has deteriorated badly since the May budget. The numbers have seen Treasury reducing its revenue forecasts and increasing its predictions of costs such as benefits. Cash deficits – the bottom line after all infrastructure funding and payments to the New Zealand Superannuation Fund are made – is predicted to blow out from around $3 billion a year to around $6 billion a year.” – NZ Herald, 6 October 2008

Fast-forward four years, and we are now having to pay for those taxcuts – which were funded by borrowing other peoples’ savings from offshore banks,

It is obvious to all but the most blinkered National/ACT supporter that our debt is growing because we have a shortfall of revenue, caused by this government’s ill-conceived tax-cuts. That shortfall is in the order of $1.4 billion.

A business columnist for the NZ Herald wrote,

“Just how much became apparent yesterday with the $1.4 billion drop in forecast tax revenue for this financial year.

The overall upshot is the Government’s cash deficit has blown out from $13.3 billion to $15.6 billion this year taking into account the unexpected expenditure and the drop in forecast tax revenue.” – Fran O’Sullivan, 15 December 2010

CTU President, , Helen Kelly wrote,

“The unsuccessful tax switch (we called it a “tax swindle” at the time) last year was not fiscally neutral as was claimed. There is a $1.4b revenue hole. It wasn’t a fair switch. The gap in take- home pay between someone on $30,000 and someone on $150,000 a year grew by $135 a week as a result of tax cuts made by this Government.” – Helen Kelly, 23 May 2011

And ex ACT MP, Muriel Newman said,

“If we look back at the state of the books just before the last election, the impact on the country of the recession and the earthquakes become more evident. Crown revenue today is $1.4 billion lower than three years ago and Crown expenses $2.2 billion higher.“ – Muriel Newman, 14 November 2011

Interestingly, Ms Newman blames the blow-out in government debt on “the recession and the earthquakes” – but makes no reference to the ’09 and ’10 tax cuts. In fact, she pours petrol on a bon-fire by saying that “ACT would lower the top rate of income tax to 25% and the company tax to 12.5%“.

One can imagine what that would do to the government deficit! (But then again, ACT would sell every single state-owned enterprise and scrap most welfare, to fund their deep tax cuts. A society governed under ACT policies would be utterly alien to anything most New Zealanders could have dreamed of. I suspect Australia’s population would rise by four million, practically overnight.)

And, spelling it out in even simpler terms, the PSA’s analysis of the figures,

.

“Tax Cuts Widen the Gap Between Rich and Poor

Government chose to make tax cuts in worst recession in 70 years

Total tax cuts worth $5.5 billion

Top 10% income earners got tax cuts worth $2.5 billion

GST increased to 15% – hurts low and middle income most

Tax cuts + GST left $1.4 billion hole in budget

Since 2008, National has introduced tax cuts that cost New Zealand around $5.5 billion a year in lost revenue. Most of the benefit has gone to the wealthiest.

National’s first set of tax cuts – the personal tax cuts and ‘Independent earner rebate’ taking effect in April 2009 – cost approximately $1 billion a year.

The second set of cuts – cutting the top income tax rate from 38% to 33%, and the company rate to 28% – will cost $4.5 billion a year, according to figures from the 2010 Budget. That gives a total of $5.5 billion.

National claimed that because it was also increasing GST, the tax changes would be “revenue neutral” – that is, the increase in GST would cancel out the income tax cuts. In fact, the losses from the income tax cut will outweigh the gains from GST by $1.4 billion. In other words, the so-called “tax switch” has blown a $1.4 billion hole in the budget.

The tax cuts have also made New Zealand a less fair place. According to Labour, the wealthiest 10% of New Zealanders will get 43% of the tax savings. And the gap in take-home pay between someone on $30,000 and someone on $150,000 a year grew by $135 a week as a result of the tax cuts.

New Zealand’s income tax rates are among the lowest in the OECD, as the Tax Working Group acknowledged.

In Australia , for example, income over $80,000 is taxed at 37%, and income over $180,000 is taxed at 45%.

Figures from the OECD itself show that, before National’s tax cuts, New Zealand’s “all in” top income tax rate – a measure that includes all taxes on income, including local and regional ones – was 38%. In contrast, the all in top income tax rate in Australia was 47%, and in most countries it was higher still.” – PSA.org.nz

Why did they do it? Why did National make a $1.4 billion committment it knew we could ill-afford?

Answer:

Because they could.

Because they wanted to be the government. Badly. And nothing quite wins votes like promises of tax cuts (even unaffordable ones).

Because they probably had no idea how bad the recession would be? Rubbish. Of course they knew: John Key’s background was in international finance. He knew precisely how bad the Recession was – and how bad it was likely to get in Europe.

The question is: why did we, the voters, do it? Why did 1,053,398 New Zealanders cast their vote for National in 2008? Why did we vote for tax-cuts – something we knew was unaffordable?

Whatever the reason, we are having to pay for those tax-cuts – or rather, the $1.4 billion in revenue short-fall that we now have to borrow from overseas. In doing so, as this government continues to post budget deficits, it continues to cut back on services; raise government charges; and sack those state workers who have spent many years of their lives doing all the things we expect done for us in education, health, defence force, border control, conservation, etc.

It is inevitable that, unless New Zealand wins the international equivalent of Lotto, this government (or it’s successor, sometime in the next three years) will have to raise taxes again. Or, steal a page from Gareth Morgan’s book and implement a new, Land/Wealth tax. There is no other way to pay of our debt and pay for Christchurch’s re-build.

Something for all New Zealanders to ponder, next time National (or any other Party) promises us a tax cut, in return for our votes.

In the mean time, Bill English signed a document last year called a “PREFU” – Pre Election Economic & Fiscal Update,